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Net neutrality: is the age of internet equality coming to an end?

Net neutrality: is the age of internet equality coming to an end?

30 October 2015

Cisco predicts global internet traffic will increase at a compound annual growth rate of 21 per cent a year between now and 2018, with mobile data traffic rising tenfold over the same period. In response, internet service providers (ISPs), whose network infrastructure is struggling to handle this data explosion, have argued that they should be allowed to take a more flexible approach to traffic in order to prevent a slowdown.

So far all data on the internet was supposed to be transmitted on the same networks, at the same speed, regardless of its origin, content or recipient. Put simply, ISPs should treat a simple e-mail in the same way as a video stream. However, they have maintained that they should have the option to block certain heavy-traffic services unless users pay a surcharge. They are also in favour of so-called ‘Quality-of-Service’ (QoS) features in which content providers can pay higher fees in return for privileged access to their infrastructure.

But the plans are opposed by supporters of net neutrality, who believe any such measures will stifle innovation since start-up content providers will be unable to afford priority access. The outcomes of this debate in the US and Europe have huge ramifications for providers of video-streaming and eHealth services – and for connected cars and ‘industry 4.0’ – which depend on consistent data transmission.

Net neutrality in the US

The US Federal Communications Commission (FCC) has been struggling to decide whether it should allow a more flexible approach to data transmission. In 2008 and 2010 it imposed net-neutrality regulations on fixed and mobile broadband providers, banning them from unreasonably blocking access to certain content and from unreasonably discriminating between content providers when transmitting network traffic. At the same time the FCC exempted cable companies from several of these obligations. These regulations have since been quashed by the US courts, so the FCC has released a new net neutrality framework by way of a ‘notice for proposed rulemaking’, which was open for public comments until September 2014. The commission is now reviewing the comments and will adopt the new framework in the following months.

The proposal includes a ‘no-blocking rule’ which sets out minimum standards of access that fixed and mobile broadband companies must give to content providers and consumers. Any reduction of service quality below the minimum standard would be deemed unlawful blocking. The proposal does not explicitly address QoS features, but instead stipulates that fixed broadband providers must refrain from ‘engaging in commercially unreasonable practices’. Since the text contains a relatively vague standard, the term ‘commercial reasonableness’ could be the basis for a rather strict net neutrality regime. However it could also result in a more flexible approach, for example by allowing the sale of QoS features on a case-by-case basis as long as they are not ‘commercially unreasonable’.

Net neutrality in the EU

EU directives on the liberalisation of the telecoms sector endorsed in principle regulations to preserve net neutrality. But at the same time they left it open to member states if and how they implement the rules. As a result many countries have no legislation on net neutrality – and those that do are pursuing different approaches. To a certain extent, more harmonisation across the European Union Member States will be achieved given that on Tuesday (27 October) the European Parliament gave its final approval to a Regulation that bundles together rules on open internet access (net neutrality) and mobile data roaming. This vote followed two years of intense negotiations between the European Commission, the Member States in the Council and the European Parliament. The outcome must be seen as a compromise between the European institutions.

A majority of Members of the European Parliament (MEPs) this week decided to vote down amendments that according to critics including the inventor of the world wide web, Sir Tim Berners-Lee, as well as tech firms such as Netflix would have strengthened net neutrality. Arguably, an important number of MEPs did so because they wanted to prevent delaying the rules on mobile data roaming, which is seen as a very salient issue for voters. The European Commission Vice President for the Digital Single Market Andrus Ansip even warned MEPs before the vote that “any change now would create a real risk of delays that could be not only months but years.” Indeed the parliamentary amendments would have needed approval from the Member States and most likely this would have reopened lengthy negotiations between the institutions.

While the approved regulation promotes the concept of net neutrality by prohibiting data discrimination or restrictions, it also contains important exceptions that weaken the principle of net neutrality and give ISPs considerable flexibility in the treatment of data flows:

‘Traffic management measures’ shall allow ISPs to control data flows in order to contribute to the efficient use of network resources and to optimise the overall transmission quality. In this respect, ISPs can limit network capacity and block certain content. However, important caveats are that those traffic management measures have to be transparent, non-discriminatory and proportionate. Furthermore, they shall not be based on commercial considerations. Network operators are not allowed to offer paid prioritisation to content providers. Measures designed to ensure the legality of content, to maintain the security and integrity of the network as well as to tackle network congestion are explicitly permitted by the new law.

‘Specialised services’ shall have access to a special transmission quality, provided there is free network capacity and the overall quality of internet access is not compromised for end users. The scope of this exception is still unclear as there is no clear definition of the concept in the Regulation. It is described rather vaguely as all the services that are optimised for specific content, applications or services and for which the optimisation is necessary to safeguard a certain level of quality.

‘Zero-rating’ is allowed by the Regulation. It is a controversial marketing concept where operators are not counting the use of preferred applications in their end customers data volume limits. Some critics argue that this practice is a form of content prioritisation. The new law only prohibits it if it limits the choice of consumers regarding their internet access and also if the content of the service can still be accessed through other ISPs.

Scope for national regulators

Although the new Regulation will be directly applicable in the Member States, its effects will largely depend on implementation and enforcement measures of the national regulatory authorities. The reason for this is that agreement between the differing views within the Council itself was only possible by giving all Member States enough leeway at national level. They shall for instance decide on minimum quality requirements on which the admissibility of the use of specialised services will ultimately depend. Moreover, Member States are left to decide on the regulatory framework. It is therefore questionable whether the new rules can ensure genuine EU-wide standards on net neutrality.

The effect of competition law

It should also be noted that the concept of net neutrality is affected by EU competition law. Concerns about net neutrality are essentially two-fold: first, such behavior can amount to an abuse of a dominant position under Article 102 of the Treaty on the Functioning of the European Union (TFEU); second, it may form an anti-competitive agreement pursuant to Article 101 of the TFEU - irrespective of a dominant position.

More information on net neutrality and competition law can be found here.

If you are interested in the EU’s Digital Single Market (DSM) project you can get in touch with our EU regulatory & public affairs team, which is following the DSM initiatives on the ground in Brussels.